Business Cycles, Unemployment and Inflation
T/F: If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the inflation premium is 13 percent.
F
If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: A. $510 billion. B. $490 billion. C. $10 billion. D. $990 billion.
A
The relationship between the size of the negative GDP gap and the unemployment rate is: A. direct. B. inverse. C. undefined. D. direct during recession, but inverse during expansion.
A
Inflation initiated by increases in wages or other resource prices is labeled: A. demand-pull inflation. B. demand-push inflation. C. cost-push inflation. D. cost-pull inflation.
C
The production of durable goods varies more than the production of nondurable goods because: A. durables purchases are nonpostponable. B. durables purchases are postponable. C. the producers of nondurables have monopoly power. D. producers of durables are highly competitive.
B
The phrase "too much money chasing too few goods" best describes: A. the GDP gap. B. demand-pull inflation. C. the inflation premium. D. cost-push inflation.
B
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. compositional unemployment.
B
Inflation means that: A. all prices are rising, but at different rates. B. all prices are rising and at the same rate. C. prices on average are rising, although some particular prices may be falling. D. real incomes are rising.
C
A college graduate using the summer following graduation to search for a job would best be classified as: A. not officially a member of the labor force. B. a part of structural unemployment. C. a part of cyclical unemployment. D. a part of frictional unemployment.
D
A recession is defined as a period in which: A. cost-push inflation is present. B. nominal domestic output falls. C. demand-pull inflation is present. D. real domestic output falls.
D
Declines in stock prices measured by the Dow Jones average: A. are a major cause of recessions. B. usually reduce saving and increase consumption spending. C. usually increase investment and reduce net exports. D. sometimes precede recessions; sometimes do not.
D
Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as: A. structurally unemployed. B. frictionally unemployed. C. not in the labor force. D. employed.
D
During a severe recession, we would expect output to fall the most in: A. the healthcare industry. B. the clothing industry. C. agriculture. D. the construction industry.
D
If actual GDP is less than potential GDP: A. potential GDP will fall. B. the price level will rise. C. investment spending will fall. D. the actual unemployment rate will be higher than the natural unemployment rate.
D
Part-time workers are counted as: A. unemployed and therefore the official unemployment rate may overstate the level of unemployment. B. unemployed and therefore the official unemployment rate may understate the level of unemployment. C. fully employed and therefore the official unemployment rate may overstate the level of unemployment. D. fully employed and therefore the official unemployment rate may understate the level of unemployment.
D
Rising per-unit production costs are most directly associated with: A. frictional unemployment. B. structural unemployment. C. demand-pull inflation. D. cost-push inflation.
D
Structural unemployment: A. is also known as frictional unemployment. B. is the main component of cyclical unemployment. C. is said to occur when people are waiting to be called back to previous jobs. D. may involve a locational mismatch between unemployed workers and job openings.
D
Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is: A. 6 percent. B. 8 percent. C. 2 percent. D. 3 percent.
D
The annual rate of inflation can be found by subtracting: A. the real income from the nominal income. B. last year's price index from this year's price index. C. this year's price index from last year's price index and dividing the difference by this year's price index. D. last year's price index from this year's price index and dividing the difference by last year's price index.
D
The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: A. military goods and capital goods. B. services and nondurable consumer goods. C. clothing and education. D. capital goods and durable consumer goods.
D
The unemployment rate of: A. women greatly exceeds that of men. B. whites is roughly equal to that of African-Americans. C. managerial and professional workers exceeds that of construction and extraction workers. D. teenagers is much higher than that of adults.
D
Unemployment rate is: A. Employed-Unemployed B. Labor force-Employed C. Employed/Unemployed D. Unemployed/Labor Force
D
Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? A. Unexpected financial bubbles that eventually burst. B. Shocks to the money supply by the nation's central bank. C. Supply shocks caused by major innovations. D. All of these are identified as causes of business cycle changes.
D
Which of the following statements is true about causes of business cycle fluctuations? A. Economists all agree that supply shocks are the cause of most business cycle fluctuations. B. Economists all agree that productivity shocks are the cause of most business cycle changes. C. Economists all agree that monetary changes are primarily responsible for business cycle fluctuations. D. There are a wide range of theories as to the underlying causes of business cycle movements.
D
Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will: A. fall by about 1 percent. B. remain constant. C. rise by about 4 percent. D. rise by about 1 percent
D 5/125 = 4%
T/F: An annual rate of inflation of 7 percent will double the price level in about 15 years.
F
T/F: During the past ten years the annual rate of inflation in the United States has averaged less than 1 percent.
F
T/F: People who work part time, but desire to work full time, are considered to be officially unemployed.
F
T/F: The business cycle is so named because upswings and downswings in business activity are predictably equal in terms of duration and intensity.
F
T/F: The production of durable goods is more stable than the production of nondurables over the business cycle.
F
T/F: If the price level doubled in a 23-year period, we can conclude that the average annual rate of inflation over that period was about 3 percent.
T
T/F: The natural rate of unemployment in the United States is about 4 to 5 percent.
T
T/F: Unanticipated inflation benefits debtors at the expense of creditors.
T
T/F: Unanticipated inflation benefits some groups in the economy.
T
Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? A. Frictional and cyclical unemployment. B. Structural and frictional unemployment. C. Cyclical and structural unemployment. D. Frictional, structural, and cyclical unemployment.
B
Who is least likely to be hurt by unanticipated inflation? A. a disabled laborer who is living off accumulated savings B. an owner of a small business C. a secretary D. a pensioned steelworker
B
A burst stock market bubble might adversely affect the economy by: A. causing rapid inflation. B. greatly reducing net exports. C. causing a severe negative wealth effect, leading to pessimism about the economy's future. D. raising interest rates.
C
A large negative GDP gap implies: A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level.
C
Compared to other industrial nations, inflation rates in the United States are: A. significantly higher. B. significantly lower. C. significantly higher than those in Europe, and significantly lower than those in Japan. D. neither significantly higher nor significantly lower.
D
Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is: A. cyclically unemployed. B. structurally unemployed. C. frictionally unemployed. D. not a member of the labor force.
C
A lender need not be penalized by inflation if the: A. long-term rate of inflation is less than the short-term rate of inflation. B. short-term rate of inflation is less than the long-term rate of inflation. C. lender correctly anticipates inflation and increases the nominal interest rate accordingly. D. inflation is unanticipated by both borrower and lender.
C
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is: A. unemployed. B. employed. C. not in the labor force. D. in the labor force.
C
Cost-of-living adjustment clauses (COLAs): A. invalidate the "rule of 70." B. apply only to demand-pull inflation. C. increase the gap between nominal and real income. D. tie wage increases to changes in the price level.
C
Cost-push inflation may be caused by: A. a decline in per unit production costs. B. a decrease in wage rates. C. a negative supply shock. D. an increase in resource availability.
C
Full-employment output is also called: A. zero-unemployment output. B. equilibrium output. C. potential output. D. zero-savings output.
C
If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: A. $360 billion. B. $660 billion. C. $320 billion. D. $20 billion.
C
If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is: A. $300 billion. B. $30 billion. C. $360 billion. D. $630 billion.
C
If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is: A. 8 percent. B. 5 percent. C. 3 percent. D. 2 percent.
C
If the unemployment rate in Spain in 6.9% and the natural unemployment rate is 5%, then: A. structural unemployment is about 3 percent. B. frictional unemployment is about 2 percent. C. cyclical unemployment is about 2 percent. D. hidden unemployment is about 5 percent.
C
Most economists agree that the immediate determinant of the volume of output and employment is the: A. composition of consumer spending. B. ratio of public goods to private goods production. C. level of total spending. D. size of the labor force.
C
If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase.
C
In the United States, business cycles have occurred against a backdrop of a long-run trend of: A. declining unemployment. B. stagnant productivity growth. C. rising real GDP. D. rising inflation.
C
In the depth of the Great Depression, the unemployment rate in the United States was about: A. 15 percent. B. 33 percent. C. 25 percent. D. 40 percent.
C
The aggregate cost of unemployment can be measured by the: A. amount by which actual GDP exceeds potential GDP. B. amount by which potential GDP exceeds actual GDP. C. excess of real GDP over nominal GDP. D. excess of nominal GDP over real GDP.
B
According to the Bureau of Labor Statistics, to be officially unemployed a person must: A. be in the labor force. B. be 21 years of age or older. C. have lost a job. D. be waiting to be called back from a layoff.
A
An unexpected increase in total spending will cause an increase in GDP: A. if prices are sticky. B. if prices are fully flexible. C. regardless of whether prices are sticky or fully flexible. D. only if prices are stuck in the long term.
A
At the economy's natural rate of unemployment: A. the economy achieves its potential output. B. there is only a relatively small amount of cyclical unemployment. C. only frictional unemployment exists. D. only structural unemployment exists.
A
Changes in stock market prices: A. do not greatly impact the macroeconomy and used alone are not reliable predictors of the future health of the economy. B. greatly impact the macroeconomy but used alone are not reliable predictors of the future health of the economy. C. greatly impact the macroeconomy and used alone are reliable predictors of the future health of the economy. D. do not greatly impact the macroeconomy but used alone are reliable predictors of the future health of the economy.
A
Cost-push inflation: A. reduces real output. B. increases real output. C. reduces the unemployment rate. D. raises the natural rate of unemployment.
A
Demand-pull inflation: A. occurs when total spending in the economy is excessive. B. is measured differently than cost-push inflation. C. can be present even during an economic depression. D. is also called "hyperinflation."
A
If both the real interest rate and the nominal interest rate are 3 percent, then the: A. inflation premium is zero. B. real GDP must exceed the nominal GDP. C. nominal GDP must exceed real GDP. D. inflation premium also is 3 percent.
A
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A. expansion B. recession C. peak D. trough
A
Inflation affects: A. both the level and the distribution of income. B. neither the level nor the distribution of income. C. the distribution, but not the level, of income. D. the level, but not the distribution, of income.
A
Inflation is undesirable because it: A. arbitrarily redistributes real income and wealth. B. invariably leads to hyperinflation. C. usually is accompanied by declining real GDP. D. reduces everyone's standard of living.
A
Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would: A. decline. B. increase. C. increase in the short run but eventually decline. D. be unchanged.
A
The government agency responsible for collecting and reporting unemployment data is the: A. Bureau of Labor Statistics. B. Bureau of Unemployment. C. Bureau of Economic Analysis. D. Bureau of Economic Research.
A
The labor force includes: A. employed workers and persons who are officially unemployed. B. employed workers, but excludes persons who are officially unemployed. C. full-time workers, but excludes part-time workers. D. permanent employees, but excludes temporary employees.
A
Unlike demand-pull inflation, cost-push inflation: A. is self-limiting. B. drives up the price level. C. increases nominal income. D. increases real income.
A
Which of the following is correct? A. The unemployment rates of men and women workers are roughly the same. B. Unemployment rates for African-American and white workers are approximately the same. C. Teenagers experience approximately the same unemployment rates as do adults. D. Laborers are less vulnerable to unemployment than are professional workers.
A
Which of the following would most likely occur during the expansionary phase of the business cycle? A. Demand-pull inflation B. Cost-push inflation C. Structural inflation D. Frictional inflation
A
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: A. 11 percent B. 33 percent. C. 91 percent. D. 10 percent.
A 33/100 = 0.11
Labor force consists of which of the following? (more than one) A. Unemployed B. Total Population C. Employed D. Discouraged Workers
A C
. The natural rate of unemployment is the: A. unemployment rate experienced at the depth of a depression. B. full-employment unemployment rate. C. unemployment rate experienced by the least-skilled workers in the economy. D. unemployment rate experienced by the most-skilled workers in the economy.
B
As it relates to economic growth, the term long-run trend refers to: A. the long-run increase in the relative importance of durable goods in the U.S. economy. B. the long-term expansion or contraction of business activity that occurs over 50 or 100 years. C. fluctuations in business activity that average 40 months in duration. D. fluctuations in business activity that occur around Christmas, Easter, and other major holidays.
B
Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as: A. cyclically unemployed. B. frictionally unemployed. C. structurally unemployed. D. employed.
B
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: A. 3 percent. B. 6 percent. C. 7 percent. D. 53 percent.
B
Demand-pull inflation: A. occurs when prices of resources rise, pushing up costs and the price level. B. occurs when total spending exceeds the economy's ability to provide output at the existing price level. C. occurs only when the economy has reached its absolute production capacity. D. is also called cost-push inflation.
B
During a period of hyperinflation: A. creditors gain because their loans are repaid with dollars of higher value. B. people tend to hold goods rather than money. C. income is redistributed away from borrowers. D. the real value of the national currency rises.
B
If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, real GDP is: A. $415 billion. B. $385 billion. C. $15 billion. D. $785 billion.
B
In the United States, the rate of unemployment is highest for: A. white teenagers. B. African-American teenagers. C. married women. D. unmarried women.
B
In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? A. military goods B. capital goods C. textile products D. agricultural commodities
B
Innovations such as the microchip and the Internet lead to business cycle variations because: A. they cause prices to be sticky. B. significant innovations occur irregularly and unexpectedly. C. the central bank will often change the money supply in response. D. they cause prices to be flexible.
B
Most economists agree that the immediate cause of most business cycle variation is: A. an unexpected change in the productivity of workers. B. an unexpected change in the level of total spending. C. the invention of new products. D. the growth and subsequent bursting of financial bubbles.
B
Official unemployment statistics: A. understate unemployment because individuals receiving unemployment compensation are counted as employed. B. understate unemployment because discouraged workers are not counted as unemployed. C. include cyclical and structural unemployment, but not frictional unemployment. D. overstate unemployment because workers who are involuntarily working part time are counted as being employed.
B
Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.
B
Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result: A. the official unemployment rate will fall. B. the official unemployment rate will rise. C. the official unemployment rate will remain unchanged. D. the size of the labor force will increase.
C
Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon where she anticipates that a new job will be available. We can say that Susie is faced with: A. seasonal unemployment. B. cyclical unemployment. C. structural unemployment. D. frictional unemployment.
C
The GDP gap measures the difference between: A. NDP and GDP. B. NI and PI. C. actual GDP and potential GDP. D. nominal GDP and real GDP.
C
The United States' economy is considered to be at full employment when: A. about 4-5 percent of the total population is unemployed. B. 90 percent of the labor force is employed. C. about 4-5 percent of the labor force is unemployed. D. 100 percent of the labor force is employed.
C
The natural rate of unemployment is: A. higher than the full-employment rate of unemployment. B. lower than the full-employment rate of unemployment. C. that rate of unemployment occurring when the economy is at its potential output. D. found by dividing total unemployment by the size of the labor force.
C
The phase of the business cycle in which real GDP declines is called: A. the peak. B. an expansion. C. a recession. D. the trough.
C
The phase of the business cycle in which real GDP is at a minimum is called: A. the peak. B. a recession. C. the trough. D. the underside.
C
The presence of discouraged workers: A. increases the size of the labor force, but does not affect the unemployment rate. B. reduces the size of the labor force, but does not affect the unemployment rate. C. may cause the official unemployment rate to understate the true amount of unemployment. D. may cause the official unemployment rate to overstate the true amount of unemployment.
C
The type of unemployment associated with recessions is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. seasonal unemployment.
C
The unemployment rate is the: A. ratio of unemployed to employed workers. B. number of employed workers minus the number of workers who are not in the labor force. C. percentage of the labor force that is unemployed. D. percentage of the total population that is unemployed.
C
Wait unemployment and search unemployment are both types of: A. cyclical unemployment. B. hidden unemployment. C. frictional unemployment. D. structural unemployment.
C
What is the primary reason that changes in total spending lead to cyclical changes in output and employment? A. Government is unable to respond by changing the amount of money in circulation. B. Changes in total spending cause supply shocks that cause cyclical variation. C. Prices are sticky in the short run. D. Prices are flexible in the long run.
C
Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services? A. Search unemployment B. Wait unemployment C. Cyclical unemployment D. Frictional unemployment
C
Which of the following would most likely move the economy into a recession in the short term? A. Invention of a new product that most consumers want to buy. B. Innovations in management that enhance worker productivity. C. The central bank printing less money than was anticipated. D. Congress passing a reduction in personal income tax rates.
C
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced: A. inflation of 4 percent. B. inflation of 3.33 percent. C. deflation of 3.33 percent D. deflation of 4 percent.
C (100 X 4)/120
The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: A. 2.8 percent. B. 3.4 percent. C. 1.6 percent D. 4.1 percent.
C (179.9 - 177.1)/177.1
